Your Money: Is your asset allocation applicable to today’s markets?

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Bruce Helmer and Peg Webb

Asset allocation is the process of dividing your investment dollars among various asset categories, typically stocks, bonds, and cash.

Generally, the more tolerant you are of risk, the more you may be able to invest in stocks. Risk-averse investors, on the other hand, may want to invest a larger portion of their portfolio in conservative investments, such as high-grade bonds or cash.

Your time horizon will also help you determine your risk tolerance and asset allocation. If you’re a young investor, you might choose an allocation with a high concentration of stocks because you may be able to ride out short-term swings in the value of your portfolio.

But if retirement is less than 10 years away, your allocation might lean more toward bonds and cash investments.

Limitations of a traditional 60/40 portfolio

The traditional “balanced” portfolio of 60% stocks (intended to provide growth potential) and 40% bonds (to generate income and dampen overall portfolio volatility) has been a long-respected “guidepost” for a moderate-risk investor. It’s also a core offering in many retirement plans.

Over the past decade or so, a 60/40 portfolio, supported by stocks marching to new highs and interest rates dropping to new lows, met lots of investors’ return expectations. That’s because, historically, stocks and bonds have a negative correlation, meaning they rarely move in lockstep. When bonds do poorly, so the theory goes, stocks advance — a perfect illustration of the benefits of diversification.

If stocks do better than bonds, a 60/40 portfolio may begin to look more like 70/30 or 80/20 — at which time a sensible investor rebalances by selling appreciated stocks and buying depreciated bonds at a discount.

During the decade between January 2011 and December 2021, a 60/40 portfolio generated an average annual return of about 11% (9% after inflation) — impressively higher than the longer-term average of 6.1%. But in 2022, stocks and bonds fell deeply in the red, and a U.S.-only 60/40 portfolio lost 16.1%, according to Vanguard. Beginning years before this, some analysts and academic researchers, including members of the Investment team at Wealth Enhancement Group, suggested it was time to rethink the 60/40 allocation.

And what our researchers concluded was that what worked in the past may not work in the future. Traditional approaches to diversification tend to focus on broad asset classes (e.g., stocks, bonds, and cash). But they don’t necessarily offer meaningful or “effective” diversification. In our definition, effective diversification considers a particular asset’s underlying source of risk, which may include one or more of the following factors:

• Company risk — the risk that a company could lose money or go bankrupt

• Interest rate risk — the risk that higher borrowing costs could render a company uncompetitive

• Purchasing power risk — the risk that a company cannot maintain economies of scale

• Manager skill risk — the risk that company leaders make poor decisions about how they invest their capital

The other wild card is inflation, which if it lasts could take a big bite out of the purchasing power of your returns (if not returns themselves). During periods of unexpected inflation, stocks and bonds may both lose money, and these effects may be even more magnified in volatile markets.

While no one can reliably predict where the market will go in the near term, the presence of higher-than-average market volatility, such as we’ve experienced over the past several years, means that balanced portfolios are likely to generate uneven returns, and even sometimes negative.

Possible tweaks to consider

We aren’t opposed to the traditional balanced portfolio as a starting point. But we think investors need to take additional steps — using Effective Diversification — to guard against what we see as a looming low-return, potentially high-inflation investment market over the near- to intermediate-term.

Diversifying with non-traditional or alternative assets such as real assets or commodities can be a central element of effective diversification — under the right circumstances and for the right investor. Our investment team has developed strategies to meet the current market environment:

• An Inflation Protection sleeve, which is geared to portfolios that are skewed more heavily to fixed income (that is, those with more than half of invested assets in bonds) and

• A Low Correlation sleeve, which seeks to dampen equity volatility. (Not without risk, this strategy may give up some positive upside during stronger markets, and so it may be appropriate for investors who are more risk averse.)

These strategies may include the use of alternative investments such as commodities, hedge funds, derivatives or real estate. If you decide to invest in these asset classes, you need to evaluate their appropriateness in the context of your individual circumstances, as well as their greater complexity, research intensity, risks, and costs. A good question to ask yourself or your adviser is, “What role does an effectively diversified portfolio, balanced across multiple asset classes, play in helping me pursue my goals?” — in keeping with your time horizon and risk tolerance.

The 60/40 balanced portfolio is really a shorthanded way of identifying your strategic asset allocation. Some investors may be less aggressive and will want to set an allocation that’s less geared to stocks, such as 30% stocks/70% bonds — especially if they are more conservative or approaching retirement. Others with a longer-term horizon and more risk tolerance may be happier with a 70/30 or 80/20 stock/bond allocation — and may include an optional 10% allocation to alternatives (80%/10%/10%).

Investing over the long haul requires patience and discipline. For the vast majority of investors, we believe that sticking to a strategic allocation to the right asset classes and maintaining effective diversification that considers the underlying sources of risk in asset classes are sensible approaches when navigating today’s markets.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. 

Bruce Helmer and Peg Webb are financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on WCCO 830 AM on Sunday mornings. Email Bruce and Peg at yourmoney@wealthenhancement.com. Securities offered through LPL Financial, member FINRA/SIPC. Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment advisor. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities from LPL Financial.

 

Late home run dooms Twins in loss to Athletics

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OAKLAND — The Twins had the matchup they were looking for with Jhoan Duran on the mound. Rocco Baldelli turned to his closer in the eighth inning earlier to face a more challenging part of Oakland’s lineup.

It just didn’t work out as they had envisioned.

The Oakland Athletics punched back last in a back-and-forth game on Friday when Shea Langeliers blasted the first pitch he saw from Duran for a two-run home run that lifted the Athletics to a 6-5 win over the Twins in the series opener at the Oakland Coliseum.

“That one was in the middle,” Duran said. “It wasn’t moving at all. … He’s a good hitter and he has power, so he took that pitch and he got a homer.”

It was also a splinker thrown at 93.7 mph, much slower than the 96.9 mph he averages with that pitch. Duran said he felt good physically but didn’t want to sacrifice control for velocity.

It came an inning after Willi Castro’s three-run home run had given the Twins (41-35) the lead, and a half inning after Austin Martin made an out on the base paths, denying Castro the chance to finish his at-bat with a runner in scoring position.

“I gave him the green light. He took the green light, which is — I want him to try to be aggressive and make a play if he thinks he’s got it,” manager Rocco Baldelli said. “And sometimes they pick when that happens. … Willi’s been swinging a good bat, and we just ended up making an out on the bases.”

The Twins had fallen behind in the fifth inning when Chris Paddack — who wasn’t his sharpest and said after the game that he was dealing with a bit of dead arm — left after allowing a pair of singles.

Both of those runers came around to score when Kody Funderburk, called up from Triple-A on Friday, allowed a double to fellow lefty Tyler Soderstrom, the first batter he faced. Langeliers followed that up with a single, pushing the Athletics’ (29-49) lead out to three at the time.

The Twins’ comeback started with Royce Lewis — who else? — hitting his 10th home run of the season in the sixth inning. He reached that number in just 16 games, becoming the fastest Twin to reach 10 home runs in a season in club history.

Castro’s home run pulled the team out of the hole and gave the Twins some new life, but their lead was short-lived, as was their first lead of the game, which came in the top of the first inning and disappeared in the bottom of the first.

The loss is the team’s third straight after winning six in a row last week. All three of those losses were one-run defeats.

“It wasn’t a smooth game,” Baldelli said. “We kind of had to fight through so many different innings both when we were in the field and offensively, too. Nothing really came easy today and we ended up just a run behind.”

Working Strategies: Land or Launch: Should 20 somethings be living at home?

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Amy Lindgren

Here’s a hot potato topic for your next dinner party: Should adult “kids” land back in their parents’ home in their 20s, or should they launch into living independently?

The statistics are a bit gummy, but most data indicate that about half of America’s 18-29-year-olds live in the family home, with another 11% of 29-34-year-olds still harboring in their childhood bedrooms. Depending on the data set, these numbers are the highest in 70 years, meaning that we could be seeing an evolution rather than a short-term trend.

So, what do you think: Good or bad idea to house these young adults in the family nest? Here are arguments for both sides.

Positive aspects of housing adult “kids”

Cost savings is the point most often raised in favor of young adults landing back at home. I’ve written more than once of a young client who lived at home and managed a fast-food restaurant for two years after graduation, completely erasing her $30,000 student loan. That early sacrifice let her then pursue her chosen field while still moving out on her own.

Depending on their goals, working adults living rent-free can save a chunk for retirement, put together a decent down payment for a house, pay cash for a car …the possibilities are nearly endless, assuming (a) the young adult is working and (b) he or she is actively saving the income.

Another positive aspect of living at home can be the sharing of responsibilities that parents would otherwise shoulder alone. With the young adult home, the parents can more freely go on vacations, for example. Or, adult children might babysit their younger siblings. In some families, the young adults contribute to expenses, easing the parents’ financial load.

One person who has been particularly vocal in her advocacy for adult kids living at home is Michelle Singletary, who writes about financial advice for the Washington Post. Here’s one that’s pertinent, but you may find yourself behind a paywall.

Unintended consequences of housing adult “kids”

It’s nearly impossible to counter the financial benefits of this arrangement — at least on paper. If the theory becomes reality and the young adults do work, do save their money, and do ease their parents’ burden, it truly is an ideal arrangement.

But this is a situation where the ideal might not happen very frequently, leading to unintended consequences. First, in order for the 20-somethings to best leverage the situation, expectations must be made clear — something that is quite difficult for some parents to do. Then, the rules must be followed and enforced — again, not easy.

So what happens when there are no expectations or they’re not followed? Pretty much what you’d expect: Kids who don’t get or keep jobs, because they don’t need the money; kids who do keep jobs but use their income for fun instead of goals; kids who become depressed and isolated because they’re not building professional relationships in the outside world.

The parents aren’t always faring well either. Some studies show 50% or more reporting financial struggles because they are supporting their adult children. These parents may forgo their own goals for retiring or downsizing a costly home, or may be dealing with the bad habits and overnight guests of their offspring.

Not surprisingly, the internet holds a number of conversation threads bemoaning the downsides of this arrangement. Click here for one that provides more space than most for individuals to describe their experiences.

And here’s what I think…

While acknowledging that this situation could work, I don’t see that as often as I’d like. In my career counseling, I’m frequently talking with parents who feel trapped by their adult kids’ continued presence in the family home. I also see young adults who struggle with their stay-at-home situation, sometimes from a lack of personal agency.

Understanding that families and individuals are different, my default setting is still going to be “launch.” If the young adult lives with roommates, uses an income-dependent loan repayment program (for student debt) and works full-time, in most cases they’ll be just fine. Truly, I promise you. And if not? Then they can move back home.

For those who need convincing, running the numbers might help. Rent is doable when split with others. And a modest income of even $10 an hour can be enough for basic expenses. This isn’t luxurious but that’s not the goal. In the end, there’s really no substitute for what can be gained in living as an adult, not as an adult “kid.”

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Amy Lindgren owns a career consulting firm in St. Paul. She can be reached at alindgren@prototypecareerservice.com.

Rinsing raw chicken? 7 food debates guaranteed to start an argument

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Sara Nelson (Associated Press)

Is that day-old rice safe to eat? Can your three-year-old clean up the cookie dough mixing bowl? And do you really need to keep butter in the fridge?

When the topic of food preparation is on the table, it seems like everyone has an opinion. If you’ve ever gotten into an argument about these controversial food practices, then keep reading for the science-based answers that will put the debates to a halt once and for all.

Does cooking really burn off all the alcohol?

Many recipes call for a splash of wine or a dash of liquor, but how much of that alcohol actually remains after cooking? The answer depends on the cooking method and time.

According to a study by the USDA, cooking can reduce the alcohol content, but it doesn’t eliminate it entirely. For instance, simmering a dish for 30 minutes can remove about 35% of the alcohol, while cooking for an hour can reduce it by around 25%.

Longer cooking times lead to further reduction, but trace amounts can still remain. Therefore, while the alcohol content significantly decreases, it’s not entirely cooked out, so be sure to consider this if serving to individuals who avoid alcohol.

How to safely enjoy leftover rice

Meal preppers rejoice: As long as you follow proper guidelines when preparing, storing and reheating, leftover rice is safe to eat the next day. Plus, picking the proper recipe will help you avoid your rice drying out overnight. Making fried rice is a great option, as is this creamy and filling wild rice mushroom soup.

The great raw cookie dough-bate

Baking cookies with your little one is a sweet way to help them foster a love of cooking at a young age. But when they beg you for a taste of raw cookie dough, do you have to say no?

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According to the United States Center for Disease Control and Prevention, or CDC, eating raw cookie dough is never safe. Raw cookie dough usually contains raw flour and eggs, which can, in turn, contain germs that make people sick. To be on the safe side, you should never eat raw cookie dough and should follow the CDC’s guidelines for baking cookies safely.

Then again, in 2016, public health faculty member and expert in health risk communication Brian Zikmund-Fisher published a CNN article stating that he and his family eat raw cookie dough regularly. Zikmund-Fisher minimizes risk by using only pasteurized eggs and ensuring that his flour is not subject to any recall notices.

“Our goal is not to minimize all risk, no matter the cost,” Zikmund-Fisher wrote. “Our goal is to maximize life…Sometimes maximizing life means letting [people] enjoy some (carefully prepared) cookie dough without shame.”

Still not comfortable digging into raw dough? An edible cookie dough recipe without any flour or eggs might be your best bet.

Should tomatoes be kept in the refrigerator or on the counter?

Experts say storing whole tomatoes at room temperature is the best way to preserve their flavor and texture. But if you’re worried about tomatoes going bad, consider keeping them in the fridge for at least a few days.

Shruthi Baskaran-Makanju of Urban Farmie says, “During late summer, when I get a bountiful harvest of fresh tomatoes, I like to store them in the fridge, especially if they’re starting to look a bit past their peak!”

While tomatoes stored at room temperature are most flavorful when eaten fresh, refrigerated tomatoes are still excellent for cooking. “They do get mushy, but I’d rather have mushy tomatoes than spoiled ones,” Baskaran-Makanju confirms. A baked tomato dish, like these baked tomatoes with parmesan, is a great way to make use of a fridge overflowing with tomatoes.

Raw chicken: to rinse or not to rinse

Chicken sashimi may be taking the internet by storm, but the average home cook still needs to follow food safety principles when handling raw chicken. So, should you wash raw chicken before cooking it?

“While washing meat and poultry to remove dirt, slime, fat or blood may have been appropriate decades ago when many slaughtered and prepared their own food, the modern food safety system doesn’t require it,” the Food Safety and Inspection Service, or FSIS, of the United States Department of Agriculture, or USDA, explains.

In fact, according to the FSIS, washing raw meat and poultry can cause bacteria to spread onto other kitchen surfaces, utensils and foods through the process known as cross-contamination. So there you have it: rinsing raw chicken is unnecessary at best and unsafe at worst. Instead, follow the FSIS’ advice on properly handling raw meat and poultry.

Has your cheese got the blues?

For many cheeses, mold is a key part of the cheese-making process: French Roquefort, Camembert, Italian Gorgonzola and many others rely on molds to help them mature. But not all mold is your friend. If your previously yellow cheese is now sporting some new green or white developments, do you have to throw it away?

Leah Ingram of Bagels and Lasagna recalls, “A long time ago, a food expert I interviewed said that it is perfectly safe to cut mold off a hard cheese and continue to eat the rest. However, they said the same is not true with soft cheese, so that’s where we draw the line.”

The USDA confirms: “Discard any soft cheese showing mold. For hard cheese, such as cheddar, cut off at least 1 inch around and below the mold spot (keep the knife out of the mold itself). After trimming off the mold, the remaining cheese should be safe to eat. Re-cover the cheese in fresh wrap and keep refrigerated.”

Can you keep butter on the countertop?

Butter was invented long before the refrigerator, so it must be safe to store at room temperature, right? According to the USDA, butter is indeed safe at room temperature, but should not be left out for more than a day or two to avoid rancid flavors. Butter bells, a 16th-century invention, can help keep butter soft.

Looking for a way to use up extra butter in a hurry? These garlic butter chicken bites make for a speedy and irresistible dinner.

Don’t leave safety up to debate

Once upon a time, tomatoes were considered deadly poison and frogs were placed in milk containers to keep milk fresh. Today’s food practices may have changed slightly, but there’s still a lot of confusion out there when it comes to food safety.

And changing cooking habits isn’t easy. You might have a hard time convincing your grandma not to thaw meat on the countertop, for example. But, as anyone who’s experienced food poisoning knows, it’s better to be safe than sorry.

So next time you’re deep in a food debate, look to government organizations like the USDA and CDC for guidance. Then, once you’ve settled things, you can move on to debating the really important questions. Pineapple on pizza , anyone?

Sara Nelson is the creator of Real Balanced, a food blog that showcases easy and balanced recipes. Since 2017, she has shared these recipes with thousands of readers and social media followers. Sara lives in Wisconsin with her family.